ENERGY BLOG

Month: April 2018

Its really hard to not believe a LNG Canada FID is coming in 2018 and coming a lot sooner than most expect as we continue to see events and comments pointing to a FID in 2018. This week’s event looks to be the most significant to date – reports that JGC and Fluor have apparently won the key contract for LNG Canada, the $14 billion design and build contract. This is much more significant than the April 9 Horizon North announcement of its conditional award to build temporary work accomodations for 1,175 beds in NE BC for an undisclosed customer. If true, this means that LNG Canada has picked its project construction team. We don’t see why this would be announced now if the FID wasn’t coming until late 2018. It is consistent with our long stated views that a LNG Canada FID was coming in 2018 and likely this summer either in the Shell Q2 reporting in late July or in mid Sept. Readers know that LNG markets and LNG Canada FID have been one of our key game changing themes for the Cdn oil and gas sector since our Sept 20, 2017 blogs on LNG markets, Shell’s bullish views, and how China’s fight against pollution was a game changer for LNG markets. The signs all point to LNG Canada FID soon, which should make for an interesting Shell Q1/18 earnings call on Thurs Apr 25. Continue reading “LNG Canada FID Is Looking Soon, Nikkei Asian Review Reports The Major $14b Orders To Design And Build Have Been Awarded”

The investor and Cdn oil and gas sector focus today is all on “what?” Kinder Morgan Canada (“KML”) is saying on the Trans Mountain expansion. The “what?” being KML is setting a May 31 deadline to get clarity on being able to complete construction without an ongoing battle and delays and changes from BC that effectively frustrate the execution of the federally approved project. However, it also means the “why now?” is being overlooked. KML highlighted that the timing of May 31 was driven by the seasonal restriction on construction activities for its pipeline through BC and its terminal expansion on the BC coast. KML said “what calls for that decision, that announcement at this time is we can’t move the seasons in Canada. there are certain seasons when you can do certain things”. The “why now?” is a good reminder of why we believe we are likely to see a game changer this summer for the Cdn oil and gas sector – a LNG Canada FID. LNG will also have seasonal construction considerations, and this is why we have consistently said that any FID in 2018 for LNG Canada would be in the summer and not year end. KML’s “why now?” comments reinforce this seasonal aspect of decision making for LNG Canada. Continue reading “The “Why Now?” For KML’s May 31 Deadline Reminds Why LNG Canada’s FID Is Likely In The Summer And Not In Nov Or Dec”

No one should be surprised to see the start of US companies selling Cdn assets to redeploy the cash into US operations. On Monday, NextEra announced the US$582.3 million sale of its Cdn wind and solar assets to CPP Investment Board, a sale driven by NextEra’s desire to redeploy capital to the US to take advantage of US tax reform bringing lower corporate taxes and significantly better write off rates for capital expenditures. Why now? Prior to the federal Liberal Feb 27 budget, companies had two months to analyze the advantages of US tax reform. With no changes in the Feb 27 budget and no indication if any changes would be forthcoming, companies can’t wait any longer to take action on capital allocation. Capital allocation is one of the most important board decisions, and these decisions are now being done on the basis of improved economic returns for US capital opportunities vs unchanged economic returns for Cdn capital opportunities. Its why we expect to see more of these sales and also for capital spending being shifted to the US over Canada. US tax reform advantages will impact capital allocation decisions in all sectors, but not necessarily as much as might be expected in the Cdn oil and gas sector. The top Cdn oil and gas plays have economics as good if not better than the top US plays and therefore relative capital allocation shouldn’t suffer. In fact, this was proven this week with ConocoPhillips stepping up to expand its liquids rich Montney land position. And well funded Cdn companies will be able to buy more quality Cdn assets that wouldn’t be available prior to US tax reform. Unfortunately, most investors will not look thru to see that these top Cdn oil and gas plays (and the top Cdn oil and gas companies) have as good or better economics than the top US plays even after US tax reform. Rather, they see the narrative of improving US fiscal regime and lack of response from Canada and move more capital to US opportunities keeping the top Cdn oil and gas companies trading at low multiples. Continue reading “Capital Starting To Redeploy To The U.S. Six Weeks After The Federal Liberal Feb 27 Budget”

Shell may not be specifically confirming they are going FID on LNG Canada, but its hard not to believe they are going to do so when you hear Shell Canada’s President talk about his execution plan for the gas supply for Phase 1 of LNG Canada. Tonight, the Globe and Mail posted a good story based on an interview with Shell Canada President Michael Crothers, wherein he outlines the gas supply sources for Phase 1 of LNG Canada. Shell and the LNG Canada joint venture partners have to work thru the natural gas supply plan as part of the FID analysis package. That work has to be done for the FID analysis. However, we don’t believe an experienced CEO like Crothers would be publicly outlining Shell’s gas supply plan for an LNG project that was unlikely to go FID. If LNG Canada was still a coin flip or less, we would have expected Crothers to believe it premature to publicly outline their gas supply plan. Rather, we believe Crothers comments fit into the Shell disclosure for the past five months, which we believe continues to point to FID for LNG Canada and our expected tiing being later this summer. Continue reading “Shell Canada President Talks Execution Plan For Natural Gas Supply For Phase 1 of LNG Canada”